2016 MARKET SNAPSHOT
According to Arbitrage RE analysts, the demand for office space in 2016 focused mainly on newly constructed buildings of high specification standards. Activity in the rental market mainly focused on lease renegotiations, occupied space consolidation and relocation to office spaces near metro stations, urban rail transit or major roads. In relative small part of the market, there was an upward trend in demand due to targeted requests and limited supply.
Following the first half of 2016, investor’s interest continued its downward trend during H2 2016 as a consequence of the continued economic uncertainty. In general, average quality and specifications (i.e. Grade B and C) offices in secondary locations experienced additional rent reductions as a result of tenant pressures during lease renegotiations. On the other hand, rents of good quality and high specifications (i.e. Grade A) prime offices remained unchanged. The Central Business District (CBD) and Northern Suburbs were Athens’s areas that attracted the most interest from tenants seeking for prime office space.
During the second half of 2016, rents in Grade A offices ranged between € 12 to € 17/m²/month, whereas for Grade B and C offices rental prices were significantly lower between €5 to €9 /m²/month. In retrospect, office rents have declined almost 50% since the pre-economic crisis period (prior 2009). Gross initial yields for offices in prime locations ranged between 7.5% and 8.5%..
The office market in general is witnessing a considerable lack of high specifications modern buildings with contemporary reception areas, energy efficient and bioclimatic design and flexible open plan working spaces. It is also characterized by high vacancy rates ranging from 20% to 40% depending on the building characteristics and its vicinity to central business districts. The highest vacancy rates are found in offices located in mixed use and aged buildings located in secondary locations.
2017 MARKET OUTLOOK
Economic uncertainty, political risk and migration crisis seem to have been the main barriers hindering international investors from looking at allocating capital in local real estate market. On the other hand, local experts are advocating that the market is now merely standing at its lowest point, almost 50% of where it was almost a decade ago. And if combined with the latest agreed reform agenda, part of the latest bailout agreement and the increasing investors’ appetite in acquiring non-performing real estate loans of major Greek banks, one can only look at the near future in a more optimistic way.
Some of the key market determinants:
- A successful second bailout assessment review in early Q2 2017
- The active management of non-performing loans (NPLs) of the 4 systemic banks
- Completions of strategic asset privatizations
- Kick-off of the development of the former Hellinikon airport
- Planned investment co-funded by EU funds and major development banks (EIB, EBRD)
For more information, please download a copy of the report here
You can also have a look at the related article in the Greek press here